GUEST COLUMN: David Hirsch

Published on June 13, 2005.

Every new form of media begins by imitating what came before it. The first TV shows were like radio with pictures. The first movies were little more than recordings of stage plays. Only years after these forms were invented did they find their unique purposes and truly flourish.

Halfway through the first decade of the new millennium, it's clear online advertising followed a similar path, embodying and embracing the promise of a two-way medium while at first replicating the 20th century advertising that came before it. The story of the past five years is the story of how that changed and what our still-young medium has begun to evolve into.

When Google launched AdWords in 1999, it was solely a CPM (cost-per-thousand)-based product. Indeed, the early Web was rife with one-way, seller-driven media: pop-ups, banner campaigns and other forms of untargeted, "buying-eyeballs" messages driven by advertisers and publishers that were infatuated with the Internet and couldn't find enough ways to spend money during the height of the '90s boom.

After the stock market crash of 2000, and Sept. 11 the following year, burst the online marketing bubble along with many others, the days of massive, accountability-free campaigns vanished forever. Business marketers constrained by newly tight budgets had to be much more sophisticated about their metrics and more mindful about waste. Campaigns couldn't just run; they had to work.

By the time ad spending began to recover in 2002, the paradigm had shifted to a pay-for-performance model that was perfect for business marketing's new fiscal realism. Google AdWords and other performance-based programs let marketers put relevant ads on search results pages and content pages, and pay for this placement only when consumers clicked on them. These buyer-initiated, pay-for-performance campaigns were just what the CFO ordered, and they opened up search advertising to a whole class of marketers.

In 2000, online advertising spending skewed heavily toward emerging companies in consumer-oriented categories, such as retail and travel, whose businesses were already online and whose metrics were therefore already fairly clear. But performance-based pricing drew in a host of business marketers-corporate services, enterprise technology and manufacturing, among others-whose high consideration, high price-point goods and services meant lengthier sales cycles and much more difficult tracking problems.

Suddenly it was possible to touch the user at every stage of the buying cycle, and use search advertising to understand and define new lead-generation metrics against nontransactional activities: the download of a white paper, a request for proposal, an e-mail capture. How much are leads worth versus sales? How much does it cost to bring in each new customer?

As today's most successful practitioners use search advertising to better understand their own pipelines, this new knowledge is changing the boundaries of campaigns themselves. A traditional campaign has a beginning, an ending and a fixed budget. Search advertising campaigns are about variable budgets and the ability to change your parameters (even the copy itself) on the fly in response to early results or unplanned events. If your ad is a hit, you can double your spend and up your per-click bid in an instant; if a real-world event changes your ideal message, you can alter your copy just as quickly. Your customers, in essence, can now tell you, in close to real time, exactly how to pitch them.

And that's the ultimate message about what search advertising is evolving into: This new medium is as much a sales channel as it is a marketing expenditure. And as marketers understand how to use this medium more effectively-and companies like ours build better and better tools to help them do so-search advertising will only become more prevalent.

According to a recent study by the Interactive Advertising Bureau and PricewaterhouseCoopers, search advertising comprised only a small percentage of online advertising revenue in 2000.

But, according to the same study, by last year that number was 40%, and it's still rising. More intriguing, despite the fact that Americans now spend as much time online as they do watching TV, online advertising still represents less than 5% of overall ad spending. That, too, will change. What the final number will be is anyone's guess.

David Hirsch is director, BtoB Vertical Markets Group, at Google Inc. He can be reached at davidh@google.com.